- Title: HUNGARY: Hungary's new government says it has stabilised state finances
- Date: 9th September 2010
- Summary: BUDAPEST, HUNGARY (FILE - 2010) (REUTERS) OTP BANK PEOPLE WALKING PAST OTP BANK BANK CENTRE ENTRANCE CITI BANK SIGN PEOPLE GOING INTO BANK CENTRE
- Embargoed: 24th September 2010 13:00
- Location: Hungary
- Country: Hungary
- Topics: Economic News,Domestic Politics
- Reuters ID: LVA93FSG2KMUL7PYJZSQVUP2MJ5R
- Story Text: Hungary's new centre-right government says it has stabilised state finances in the first 100 days of its term, claims the former Socialist government left behind a budget based on false numbers.
Hungary's new centre-right government has stabilised state finances in the first 100 days of its term, after the Socialists left behind a budget based on false numbers, the prime minister said.
Prime Minister Viktor Orban also told a conference on Tuesday (September 7) that the government was sticking to its aim of allowing Hungary to regain financial independence. The government has said it will not renew a funding deal with the IMF that expires in October.
Data on Tuesday showed Hungary's budget deficit hit 124.2 percent of the full-year target by the end of August, so the government will need to keep tight fiscal policy to be able to meet this year's deficit target of 3.8 percent of GDP.
Orban, who faces local municipal elections on October 3, did not give any guidance or details on the government's 2011 budget plans, which will be the focus of attention for investors seeking clues on the new government's medium-term fiscal and economic plans.
Orban said one of the first key tasks of his Fidesz government was to put a floor under crumbling state finances.
"The budget of the previous government which was based on false numbers put the country in a very dangerous situation, and therefore we had to take several measures to stabilise the financial system," Orban said, speaking about the former Socialist government.
He said a new law passed in July which imposes a major tax on the financial sector this year and in 2011, and Hungary's firm stance in its talks with the International Monetary Fund allowed the government to state that it wanted the country to regain its economic sovereignty.
"The story of the talks with the IMF was also good so we can state that the government of national issues would stick to regaining financial independence and economic sovereignty," Orban said.
He also said his cabinet had laid the basis for a new, strong Hungary which would be built on "real" achievements instead of Utopian ideas that had collapsed amid the global economic crisis.
Orban also said his government, which took office in May, would go ahead with a plan to give the state a right of pre-emption to buy land, in a bid to prevent "foreign speculators" buying up farming land even if Hungary fails in its bid to extend a land purchase ban until 2014.
Orban said he never desired to take "the role of Che Guevara in a fight against banks", but his government had to tax banks in order to stabilise state finances. Another measure was to cut state spending by 120 billion forints, he said.
"It is the bank tax that most people tap my shoulder or shake my hands for...but quite simply, Hungary was in such a financial situation, we took over such a legacy that we had to do it," Orban said.
Hungary's deficit target is still achievable this year if the government keeps a firm grip on finances, analysts said.
Orban has pledged to meet this year's target, but has also indicated that Hungary would seek leeway next year to boost its ailing economy, and is reluctant to cut the deficit to below 3 percent as required by EU rules.
Hungary shocked markets in July when talks with its lenders the IMF and the European Union collapsed over a review of the country's existing financing deal which was secured in 2008.
Apparently referring to a row over pay with the National Bank of Hungary and European bodies, Orban also said the government had imposed a salary cap in the public sector.
As of September 1, the government imposed a cap on salaries in the public sector, including central bankers' salaries -- a measure which triggered objections from the European Central Bank and criticism from the European Commission.
"We introduced the two million Forints per month salary cap in the public sector and this applies to everyone. I'd like to stress, even to those who run to Brussels to complain. It applies to everyone because there is no exemption in good morals. The rule of good morals also applies for the bankers, even to those who fill the post of the most elegant banker. Therefore, whatever foreign criticism or resistance we get we cannot disregard the rule of good morals for everyone who works in the public sector," Orban said.
Analysts say Orban's tough talk towards the IMF and the EU may soften a little after the upcoming local elections that Fidesz is set win and thus further cement its power to carry out the necessary reforms.
"Obviously, the government is playing tough just before the upcoming local elections but afterwards - not by visibly bowing to foreign powers but they will aim for a 3-2.9 percent deficit in next year's budget because otherwise the European Union may use Hungary as an example to set a punishment and withdraw some of its cohesion funds," analyst Zoltan Kiszelly said.
The forint which has seen increased volatility in the past months due to shifts in global risk appetite and also concerns over the government's policies, fell to a new record low versus the Swiss franc on Tuesday and traded at 223.60 at 1555 GMT.
This puts Hungarians indebted in Swiss francs in a difficult position, which is seen as a key vulnerability.
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